Should Vermonters prepay their property taxes?

President Donald Trump paid a post-Christmas visit to firefighters in West Palm Beach, Florida. Greeting the first responders he touted his legislative accomplishments, including the GOP tax bill, also saying the country's "doing well." (Dec. 27)
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The office of the City Clerk and Treasurer in Burlington City Hall is where residents can pay their property taxes. Seen on Thursday, December 28, 2017. (Photo11: GLENN RUSSELL/FREE PRESS)Buy Photo

Taxpayers in high-tax states like New York, Virginia, New Jersey and yes, Vermont, have been scrambling to pre-pay their property taxes to avoid a $10,000 cap on deductions for income and property taxes in the new tax law passed by Congress.

The new law goes into effect on Monday. Those who prepay before then are counting on the ability to deduct those payments from the 2017 tax year.

Currently there is no limit on income and property tax deductions, said Bret Hodgdon, a partner at the Williston accounting firm, Davis & Hodgdon Associates CPAs.

Brian Lowe, chief of staff for Burlington Mayor Miro Weinberger, said Thursday that beginning on Dec. 18, 184 people came into the city office and paid for taxes due in March; and 157 people also paid for taxes due in June.

"I do think it's unusual from a city perspective," Lowe said of the prepayments. "It's definitely different than in prior years."

Joe Colangelo, town manager of Shelburne, said Thursday he has seen a lot of people coming into the town offices to pay the third installment of their property taxes early. The payment is due in March.

"Our policy is we accept payments if people want to try to prepay for next fiscal year, but we're not taking a stance on whether any of those payments are tax deductible," Colangelo said.

In an attempt to clear up confusion concerning whether prepaid property taxes will be deductible, the IRS issued a statement on Wednesday saying that only taxes assessed before 2018 are deductible.

"Which is still confusing," Bret Hodgdon said. "Our interpretation all along, and I think the latest guidance supports this, is if you have been billed for property taxes and the installment is due in 2018, then you can go ahead and prepay it. You can't prepay for taxes you haven't been invoiced for."

Hodgdon said the benefits of prepayment can be significant, especially those paying the highest tax rate of 39.6 percent.

"Any property tax dollar they can accelerate they're getting nearly a 40 percent benefit," Hodgdon said. "Pay $1,000 now and get a $400 cash benefit. Next year when you file your return it's only costing you $600 to pay a $1,000 bill."

Even in the lower tax brackets, the savings are significant, Hodgdon said. Property taxes of $8,000 are common, he said, and if half of that amount is due next year, even for those paying at a rate of 25 percent, prepayment could save $1,000.

"That's the power of it," Hodgdon said. "Money in your pocket."

Hodgdon said the ability to prepay property taxes depends on the billing cycle of your town. In Charlotte, for example, he said property tax bills are sent out in July and are due in November of the same year, so there's no opportunity to prepay.

Burlington bills in June or July for four installments, two of which are due that same year — 2017 in this case — and two of which are due in 2018.

"Those folks have the opportunity to pay those 2018 installments by the end of the year and get a deduction," Hodgdon said.

Hodgdon has clients in Essex, Colchester, Milton and Jericho who also have the opportunity to prepay property taxes.

President Donald Trump signs tax reform legislation into law Dec. 22 in the Oval Office in Washington, D.C.(Photo11: Getty Images)

While Shelburne will accept estimated property tax payments for bills that have not yet been sent, Burlington issued a statement on Tuesday saying it would only accept prepayment of property taxes for which taxpayers have already been billed, reflecting the guidance from the IRS.

Lowe said Burlington issued a statement after receiving about 30 inquires regarding prepayment of property taxes.

Hodgdon said prepayment of property taxes only makes sense for people who have the cash flow to handle it. He said Vermonters who pay the alternative minimum tax are out of luck.

"If you're paying alternative minimum tax, state income and property taxes are disallowed so there's no benefit to prepaying," Hodgdon said.